UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒ ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2022
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _________ to ________
Commission file number: 001-38543
OptimizeRx Corporation
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number: 248-651-6568
Securities registered under Section 12(b) of the
Exchange Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.001 OPRX NASDAQ Capital Market
Securities registered under Section 12(g) of the
Exchange Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by checkmark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer ☐ Accelerated filer
☒ Non-accelerated filer ☒ Smaller reporting company
☐ Emerging growth company
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second
fiscal quarter. $486,888,119
Indicate the number of shares outstanding of
each of the registrant’s classes of common stock, as of the latest practicable date. 17,100,097 common shares as of February 28,
2023.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive
proxy statement, in connection with its 2023 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within
120 days after December 31, 2022, are incorporated by reference into PART III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 14
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Mine Safety Disclosures 14
Item 4.1 Information about Our Executive Officers 14
PART II
Item 6. Reserved 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 24
Item 8. Financial Statements and Supplementary Data 25
Item 9A. Controls and Procedures 26
Item 9B. Other Information 27
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 27
PART III
Item 10. Directors, Executive Officers and Corporate Governance 28
Item 11. Executive Compensation 28
Item 14. Principal Accountant Fees and Services 28
PART IV
Item 15. Exhibits and Financial Statement Schedules 29
i
PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains statements
that relate to future events and expectations and, as such, constitute forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995. Certain statements, other than purely historical information, including estimates, projections, statements
relating to our strategies, outlook, business and financial prospects, business plans, objectives, and expected operating results, and
the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements
generally are identified by the words “believes,” “project,” “expects,” “anticipates,”
“estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements
are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements. Forward-looking statements are not guarantees of future performance. Although OptimizeRx
believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, these expectations may
not be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements
due to a variety of risks, uncertainties and changes in circumstances, many of which are beyond OptimizeRx’s control.
For a discussion of some of the specific factors
that could cause actual results to differ materially from the information contained in this report, see the following sections of this
report: Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” including the disclosures under “Critical Accounting Estimates”. Market projections
are subject to the risks discussed in this report and other risks in the market. OptimizeRx disclaims any intention or obligation to update
publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable
law.
Unless otherwise specified or the context otherwise
requires, when used in this Annual Report on Form 10-K, the terms “we,” “our,” “us,” “OptimizeRx,”
or the “Company” refer to OptimizeRx Corporation and its subsidiaries.
Item 1. Business
General
OptimizeRx is a digital health technology company
enabling care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout
the patient care journey. Connecting over 60% of U.S. healthcare providers and millions of their patients through an intelligent technology
platform embedded within a proprietary point-of-care network, OptimizeRx helps patients start and stay on their medications.
We are a Nevada corporation organized in September
2008. We conduct our operations through our wholly-owned subsidiaries, OptimizeRx Corporation, a Michigan corporation, CareSpeak Communications,
Inc., a New Jersey corporation, CareSpeak Communications, D.O.O., a controlled foreign corporation incorporated in Croatia, and Cyberdiet,
a controlled foreign corporation incorporated in Israel.
We employ a “land and expand” strategy
focused on growing our existing client base and generating greater and more consistent revenues in part through the continued shift in
our business model toward enterprise level engagements, while also broadening our platform with innovative proprietary solutions such
as our TelaRepTM virtual communication solution and our AI-powered real-world evidence solution which uses sophisticated proprietary
algorithms.
1
Industry Background
Life sciences organizations face a challenging
commercial landscape. In recent years, they have met increased competition, shrinking market sizes, and inconsistent access to patients
and healthcare professionals - their most important customers. The majority of new drug approvals, 81%, are specialty medications, leading
to more complex diagnosis criteria, increased utilization management by healthcare payors, and lengthy wait times for patients to begin
treatment once care decisions are made.
As a result, life sciences organizations have
increasingly turned to technology solutions to support their commercial strategies. Spending on digital solutions to facilitate greater
access to their end markets accounts for one-third of their collective $30bn commercial spend in the United States (U.S.).
We believe significant opportunity exists to address
the unmet needs of life sciences organizations as they relate to digital solutions, including omni-channel access to health care professionals,
for complex commercial challenges.
2022 Company Highlights
3. Gross margins increased from 58% to 62%.
6. Acquired the EvinceMed platform and related assets.
Principal Solutions
Historically, we primarily facilitated financial
messages to health care providers via their EHR and ePrescribe systems using the OptimizeRx proprietary network to solve the ever-increasing
communication barriers between pharmaceutical representatives and healthcare providers. Over time, as the demand for communication of
an increasing variety of different health information between life science companies, providers, and patients has risen, our platform
has expanded to encompass additional solutions that enable healthcare providers to access information for patients at the point of care.
These solutions include evidence-based physician engagement, point of care banner messaging, social network banner messaging, institutional
account-based banner messaging, innovative patient engagement services, and various accelerators to the therapy initiation workflow.
Our principal solutions can be summarized as follows:
Evidence-Based Physician Engagement
– Our evidence-based physician engagement solution uses predictive analytics via machine learning methods applied to real-world
data (RWD) to assist healthcare providers (HCPs) in identifying patients who may be qualified for specific therapies, raise awareness
of patient access pathways, and identify early indicators of non-adherence among patient populations. This RWD-enabled solution translates
into better support for providers as they look to make the best treatment decisions for their patients. This solution has a “patient-first”
focus, helping manufacturers identify which HCPs to engage by first identifying if they currently care for qualified patients, based on
where they are in their care journey and disease state. These Artificial Intelligence (“AI”) models provide our clients with
the most relevant targets and fuel the deployment of programs across our other solutions.
Point of Care Banner Messaging
– Our point of care banner messaging solution is utilized to deliver a variety of awareness (brand, therapeutic support,
affordability, HUB, and patient support program) and messaging within the clinical workflow which can be tailored to meet the needs
of each brand.
Social Network Banner Messaging
– This past year we expanded to provide exclusive access to deliver banner messaging to HCPs within their social network apps.
With extensive reach and granular reporting, this solution both expands the ability to reach more prescribers while adding to the mind
share we can capture throughout a care delivery day. Given these messages are targeted to specific HCPs, many of the same awareness messages
offered on the point of care banner solution are offered here as well.
2
Institutional Account-based Banner Messaging
– Our Institutional Account-based Banner Messaging solution provides our clients access to delivering banner messaging online and
on the intranets of targeted health system accounts. This allows our clients to capture additional mind share while also reaching other
prescribers and support staff at key health systems or integrated delivery networks (IDNs).
Financial Messaging – Our
Financial Messaging solution has been enhanced by Patient Support Messaging at the point-of-care. This solution provides prescribers visibility
to branded copay offers and other patient support programs directly within their EHR and/or e-Prescribe system(s). It allows them to print,
digitally send directly to patients via SMS, and/or digitally send copay offer details electronically to the dispensing pharmacy. Our
solution addresses the fact that many healthcare systems and prescribers are looking for an easier, more effective way to increase affordable
access and adherence to their prescribed branded medications.
Patient Engagement – Our technology
solution provides digital messaging services through our cloud-based Mobile Health Messenger (“MHM”) Platform. We provide
interactive health messaging for improved medication adherence and care coordination. Our HIPAA-compliant, automated, mobile messaging
platform allows pharmaceutical manufactures and related entities to directly engage with patients to improve regimen compliance.
Therapy Initiation Workflow –
The therapy initiation workflow is a group of digital solutions focused on accelerating patient access to treatments where time-consuming
medical documentation is required of HCPs prior to pharmacies dispensing prescribed drugs. These solutions support the fast-growing area
of specialty medications. This technology enhancement allows life sciences companies to simplify therapy initiation by presenting HCPs
with a fully electronic option synchronizing enrollment, benefits verification, prior authorization, and patient support onboarding.
Sales and Marketing
We employ a sales team of over 19
people, marketing our solutions to new and existing clients. Our sales team drives awareness of the increased value of our technology
stack as an enterprise platform, enhanced this year by the addition of the social channel, and momentum of our institutional/account-based
banner message solutions offering. Accordingly, our sales efforts are not directed merely at selling individual solutions, but more broadly
towards selling enterprise platform engagements with access to our full set of solutions across our network.
Our sales
and marketing organizations work closely together to cultivate customer relationships. We use a number of methods to market and promote
our solutions, including digital advertising, industry events, trade shows, conferences, media coverage, social media and email. We
released a physician survey of 100 physicians across five specialties, detailing the specialty landscape as it pertains to prescribing
pain points specialists experience. Additionally, we hosted our third annual Innovate4Outcomes event, partnering with Melinta Therapeutics,
bringing individuals together across healthcare verticals, including HCPs, commercial manufacturer representatives, and health tech. The
event focused on applying design thinking principles to contributing factors to Anti-Microbial Resistance, and was independently covered
in end-of-year trade publications for the first time.
Technology
To support our growth and provide maximum security,
scalability, and flexibility, all of our systems, including from acquisitions, are now hosted and integrated in the cloud. Our technology
development and systems management core team is in the U.S. and in Croatia, with contractors in India and Ukraine to provide bench depth,
rich skills experience, and business economies. The teams are organized into Centers of Excellence focused on Product Domains, Quality
Assurance, Information Security, Data Warehousing and Business Intelligence, Platform Services, and Internal Systems Support.
Systems enhancements in 2022 included upgrades
and documentation of processes and procedures and security implementation for ongoing Sarbanes Oxley, HIPAA, and customer assessments,
and in achieving Enterprise HITRUST Certification, as well as for other needs.
3
Competition
Our platforms face competition from numerous other
companies, both in attracting users and in generating revenue from advertisers and sponsors. We compete for users with online services
and websites that provide savings on medications and healthcare products. Our messaging offerings compete for pharmaceutical budgets with
a variety of other forms of advertising and promotion.
Our platforms compete broadly in the highly competitive
pharmaceutical and life sciences digital marketing industry that is dominated by large well-known companies with established names, solid
market niches, wide arrays of product offerings and marketing networks. Many of our competitors have greater financial, technical, product
development, marketing and other resources than we do. These companies may be better known than we are and have more customers or users
than we do. As a result, many of these companies may respond more quickly to new or emerging technologies and standards and changes in
customer requirements. These companies may be able to invest more resources in research and development, strategic acquisitions, and sales
and marketing. The primary direct competitor in our financial messaging solution is ConnectiveRx. We generally compete on the basis of
several factors, including size of our network, quality of our service, our ability to target specific customer needs, and to a lesser
extent, price. For more information on risks relating to our competition, see Item 1A. Risk Factors.
Intellectual Property
We own patents important to our business, and
we expect to continue to file patent applications to protect our research and development investments in new products. As of December 31,
2022 we held 3 patents and several pending patent applications, including foreign counterpart patents and foreign applications. For the
United States, patents may last 20 years from the date of the patent’s filing, depending upon term adjustments made by the patent
office.
In addition, we hold trademarks in the United
States and other countries. As of December 31, 2022, OPTIMIZERx, OPTIMIZEMD, CareSpeak, DIETWATCH, Innovate4Outcomes, SPRx, SPx and TELAREP
are our registered trademarks. We also have several pending trademark applications.
We also have licenses to intellectual property for the use and sale
of certain of our solutions. In addition, we obtain other intellectual property rights and/or licenses used in connection with our business
when practical and appropriate. Historically, we have created intellectual property or obtained intellectual property through commercial
relationships and in connection with acquisitions.
Government Regulation
The healthcare industry and, in particular, our
customers and partners are subject to U.S. federal, state and local laws and regulations, including those governing fraud, abuse, privacy
and security. Many of these laws and regulations are complicated and how they might apply to us, our customers, our partners, or the specific
services and relationships we have with our customers and partners are not always well-defined. Our failure, or perceived failure, to
accurately apply, or comply with, these laws and regulations could subject us to significant fines and liability, result in reputational
harm, and adversely affect our business. Any new or amended laws or regulations that impose significant operational restrictions and compliance
requirements may negatively impact our business. See Item 1A. Risk Factors for more information on the impact of Government Regulations
on OptimizeRx.
Employees
As of December 31, 2022, we had 94 full-time
employees in the U.S, as well as 15 full-time employees in Croatia, and 1 part-time employee. None of our employees are represented by
a labor union or collective bargaining agreement with respect to their employment with us. The majority of our employees work remotely
and are geographically distributed across the United States and Croatia. We supplement our workforce with contractors in the United States
and internationally on an as-needed basis. We consider our relationship with our employees to be good and have not experienced any work
stoppages.We are dedicated to maintaining an environment where everyone feels valued, and we celebrate both the differences and similarities
among our people. We also believe that diversity in all areas, including cultural background, experience and thought, is essential in
making our Company stronger. Our Diversity, Equity & Inclusion Committee (DE&I) is actively engaged in improving our culture,
hiring practices and education. In 2022, we endeavored to uphold the Parity Pledge – a commitment made in 2021 to interview and
consider at least one qualified woman and underrepresented minority for every open role, VP or higher. In addition, the DE&I Committee
sponsored quarterly events in 2022, including “Celebrate Women’s History”, “Celebrate Diversity Month”, and “Hot
One’s Trivia Show.”
4
We prioritize recruiting, retaining, and incentivizing
a highly qualified, diverse workforce. We pay our employees competitively and offer a broad range
of company-paid benefits, which we believe are competitive with others in our industry. Moreover, we believe our long-term incentives
are structured in a manner to provide time-based vesting schedules that are retentive and we incentivize selected employees through
the granting of stock-based awards for and cash-based performance bonus awards.
We have increased our focus on training and development
for our current employees. We offer learning and development opportunities and other resources to support our employees in achieving and
enhancing their development objectives. We equip our managers with the skills and tools to provide ongoing coaching and feedback so employees
can maximize their performance and potential, delivering success for the company and the employee.
Available Information
Our Internet address is www.optimizerx.com. The
information on the website is not and should not be considered part of this Form 10-K and is not incorporated by reference in this Form
10-K. The website is, and is only intended to be, for reference purposes only. We make available free of charge on or through our website
our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission
(the “SEC”). In addition, we will provide, at no cost, paper or electronic copies of our reports and other filings made with
the SEC. Requests should be directed to: Attention: Secretary, OptimizeRx Corporation, 400 Water Street, Suite 200, Rochester, MI 48307.
Item 1A. Risk Factors
Risks Relating to Our Business
Because we have historically experienced
losses, if we are unable to achieve profitability, our financial condition and company could suffer.
With the exception of 2021, we have historically
incurred losses as a result of investing in future growth. We incurred losses in 2022 as a result of our increased spending to build the
organization to support expected future growth – both through additional new hires, as well as through acquisitions. While we have
increased revenues, we have not yet consistently achieved profitability due to these investments and non-cash expenses. Our ability to
achieve consistent profitability depends on our ability to generate sales through our technology platform and advertising model, while
maintaining reasonable expense levels. If we do not achieve sustainable profitability, it may impact our ability to continue our operations.
Seasonal trends in the pharmaceutical brand marketing industry
could affect our operating results.
In general, the pharmaceutical brand marketing
industry experiences seasonal trends that affect the vast majority of participants in the pharmaceutical digital marketing industry. Many
pharmaceutical companies allocate the largest portion of their brand marketing to the fourth quarter of the calendar year. As a result,
the first quarter tends to reflect lower activity levels and lower revenue, with gradual increases in the following quarters. We generally
expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect
our operating results.
5
Developing and implementing new and updated
applications, features and services for our portals may be more difficult than expected, may take longer and cost more than expected and
may not result in sufficient increases in revenue to justify the costs.
Attracting and retaining users of our portals
requires us to continue to improve the technology underlying those portals and to continue to develop new and updated applications, features
and services for those portals. If we are unable to do so on a timely basis or if we are unable to implement new applications, features
and services without disruption to our existing ones, we may lose potential users and clients. The costs of development of these enhancements
may negatively impact our ability to achieve profitability.
We rely on a combination of internal development,
strategic relationships, licensing and acquisitions to develop our portals and related applications, features and services. Our development
and/or implementation of new technologies, applications, features and services may cost more than expected, may take longer than originally
expected, may require more testing than originally anticipated and may require the acquisition of additional personnel and other resources.
There can be no assurance that the revenue opportunities from any new or updated technologies, applications, features or services will
justify the amounts spent.
Any failure to offer high-quality customer
support for our portals may adversely affect our relationships with our customers and harm our financial results.
Once our solutions are implemented, our customers
use our support organization to resolve technical issues relating to our solutions. In addition, we also believe that our success in selling
our solutions is highly dependent on our business reputation and on favorable recommendations from our existing customers. Any failure
to maintain high-quality customer support, or a market perception that we do not maintain high-quality support, could harm our reputation,
adversely affect our ability to maintain existing customers or sell our solutions to existing and prospective customers, and harm our
business, operating results and financial condition.
We may be unable to respond quickly enough to
accommodate short-term increases in customer demand for support services. Increased customer demand for these services, without corresponding
revenues, could also increase costs and adversely affect our operating results.
We are dependent on a concentrated group
of customers.
Because the pharmaceutical industry is dominated
by large companies with multiple brands, our revenue is concentrated in a relatively small number of companies. We have approximately
100 pharmaceutical manufacturers as customers, and our revenues are concentrated in these customers. Loss of one or more of our larger
customers could have a negative impact on our operating results. Our top five customers represented 39% of revenue for the year ended
December 31, 2022. In each of 2022 and 2021, we had one customer that each represented slightly over 10% of our revenues.
We expect that we will continue to depend upon
a relatively small number of customers for a significant portion of our total revenues for the foreseeable future. The loss of any of
these customers or groups of customers for any reason, or a change of relationship with any of our key customers could cause a material
decrease in our total revenues.
Additionally, mergers or consolidations among
our customers in the healthcare industry could reduce the number of our customers and could adversely affect our revenues and sales. In
particular, if our customers are acquired by entities that are not also our customers, that do not use our solutions or that have more
favorable contract terms with competitors and choose to discontinue, reduce or change the terms of their use of our solutions, our business
and operating results could be materially and adversely affected.
6
If we are unable to maintain our contracts
with electronic prescription platforms, our business will suffer.
We are reliant upon our contracts with leading
electronic prescribing (“ERx”) platforms and electronic health record (“EHR”) systems to generate our revenues received
from customers. Such arrangements subject us to a number of risks, including the following:
We will need to maintain these relationships as
well as diversify them. The inability to do so could adversely impact our business. We generated 31.8% and 53.9% of our revenue through
our largest partner in 2022 and 2021, respectively.
Our agreements with ERx and EHR channel
partners are subject to audit.
Our agreements with our ERx and EHR channel partners
provide for revenue sharing payments to them based on the revenue we generate through their platforms and systems. These payments are
subject to audit by our channel partners, at their cost, and if there is a dispute as to the calculation, we may be liable for additional
payments. If an underpayment is determined to be in excess of a certain amount, for example 10%, some agreements would require us to pay
for the cost of the audit, as well.
If we fail to attract new customers or retain
and expand existing customers, our business and future prospects may be materially and adversely impacted.
We currently work with many leading pharmaceutical
companies, medical device manufacturers, associations, and other companies. While we have experienced customer growth, this growth may
not continue at the same pace in the future or at all. Achieving growth in our customer base may require us to engage in increasingly
sophisticated and costly sales and marketing efforts that may not result in additional customers. We may also need to modify our pricing
model to attract and retain such customers. If we fail to attract new customers or fail to maintain or expand existing relationships in
a cost-effective manner, our business and future prospects may be materially and adversely impacted.
Actual or perceived failures to comply with
applicable laws and regulations that affect the healthcare industry, including data protection, privacy and security, fraud and abuse
laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition.
The global data protection landscape is rapidly
evolving, and we are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection,
use, disclosure, retention, and security of personal information, including health-related information. This evolution may create uncertainty
in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer, use and share personal information,
necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost
of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure
by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our
processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third
parties, and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and
business.
7
We also may be bound by contractual obligations
and other obligations relating to privacy, data protection, and information security that are more stringent than applicable laws and
regulations. The costs of compliance with, and other burdens imposed by, laws, regulations, standards, and other obligations relating
to privacy, data protection, and information security are significant. Although we work to comply with applicable laws, regulations, and
standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and
applied in an inconsistent manner from one jurisdiction to another, and may conflict with another or other legal obligations with which
we must comply. Accordingly, our failure, or perceived inability, to comply with these laws, regulations, standards, and other obligations
may limit the use and adoption of our solution, reduce overall demand for our solution, lead to regulatory investigations, breach of contract
claims, litigation, and significant fines, penalties, or liabilities for actual or alleged noncompliance or slow the pace at which we
close sales transactions, any of which could harm our business.
The Health Insurance Portability and Accountability
Act of 1996, or HIPAA, and the rules promulgated thereunder require certain entities, referred to as Covered Entities, to comply with
established standards, including standards regarding the privacy and security of protected health information, or PHI. HIPAA further requires
that Covered Entities enter into agreements meeting certain regulatory requirements with their business associates, as such term is defined
by HIPAA, which, among other things, obligate the business associates to safeguard the covered entity’s PHI against improper use
and disclosure. While we are not a Covered Entity, we have contracted as a business associate of our Covered Entity customers and, as
such, may be regulated by HIPAA and have contractual obligations unders such agreements, including to enter into business associate agreements
with our third-party vendors. We, and our Covered Entity customers might face significant contractual liability pursuant to such business
associate agreements if the business associate breaches the agreement or causes the Covered Entity to fail to comply with HIPAA. It is
possible that HIPAA compliance could become a substantial regulatory burden and expense to our operations as we expand our point of care
technology solutions to help patients start and stay on therapies.
Certain other laws and regulations such as federal
and state anti-kickback and false claims laws may apply to us indirectly through our relationships with our customers and partners. Violations
can result in considerable penalties and sanctions. If we are found to have violated, or to have facilitated the violation of such laws,
we could be subject to significant penalties.
The markets in which we operate are competitive,
continually evolving and, in some cases, subject to rapid change.
Our platforms face competition from numerous other
companies, both in attracting users and in generating revenue from advertisers and sponsors. We compete for users with online services
and websites that provide savings on medications and healthcare products, including both commercial sites and not-for-profit sites. We
compete for advertisers and sponsors with health-related web sites, general purpose consumer web sites that offer specialized health sub-channels,
other high-traffic web sites that include both healthcare-related and non-healthcare-related content and services, search engines that
provide specialized health searches, and advertising networks that aggregate traffic from multiple sites.
Many of our competitors have greater financial,
technical, product development, marketing and other resources than we do. These organizations may be better known than we are and have
more customers or users than we do. We cannot provide assurance that we will be able to compete successfully against these organizations
or any alliances they have formed or may form. Since there are no substantial barriers to entry into the markets in which our public portals
participate, we expect that competitors will continue to enter these markets.
Developments in the healthcare industry
could adversely affect our business.
Most of our revenue is derived from pharmaceutical
manufacturers and could be affected by changes affecting the broader healthcare industry, including decreased spending in the industry
overall.
General reductions in expenditures by healthcare
industry participants could result from, among other things:
● Consolidation of healthcare industry participants;
● Reductions in governmental funding for healthcare; and
8
Even if general expenditures by industry participants
remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market
segments that we serve now or may serve in the future. For example, use of our solutions and services could be affected by:
● A decrease in the number of new drugs or medical devices coming to market; and
The healthcare industry has changed significantly
in recent years and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare
industry are difficult to predict. We cannot assure you that the demands for our solutions and services will continue to exist at current
levels or that we will have adequate technical, financial and marketing resources to react to changes in the healthcare industry.
If we are unable to manage growth, our operations
could be adversely affected.
Our ability to manage growth effectively will
depend on our ability to improve and expand operations, including our financial and management information systems, and to recruit, train
and manage personnel. There can be no assurance that management will be able to manage growth effectively. To manage growth effectively,
we will be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage
our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance
our operational, financial and management controls, reporting systems and procedures, and to attract and retain sufficient talented personnel.
If we do not properly manage the growth of our
business, we may experience significant strains on our management and operations and disruptions in our business. Various risks arise
when companies grow too quickly. If our business grows too quickly, our ability to meet customer demand in a timely and efficient manner
could be challenged. We may also experience development delays as we seek to meet increased demand for our solutions. Our failure to properly
manage the growth that we or our industry might experience could negatively impact our ability to execute on our operating plan and, accordingly,
could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current or potential
customers.
Our growth may be impacted by acquisitions.
We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully.
Our future growth is likely to depend to some
degree on our ability to acquire and successfully integrate new businesses. We may not be able to identify suitable acquisition candidates,
complete acquisitions, or integrate acquisitions successfully. We may seek additional acquisition opportunities, both to further diversify
our business and to penetrate or expand important product offerings or markets. There are no assurances, however, that we will be able
to successfully identify suitable candidates, negotiate appropriate terms, obtain financing on acceptable terms, complete proposed acquisitions,
successfully integrate acquired businesses, or expand into new markets. Once acquired, operations may not achieve anticipated levels of
revenues or profitability. Acquisitions involve risks, including difficulties in the integration of the operations, technologies, services
and products of the acquired companies and the diversion of management’s attention from other business concerns. Although our management
will endeavor to evaluate the risks inherent in any particular transaction, there are no assurances that we will properly ascertain all
such risks. Difficulties encountered with acquisitions could have a material adverse impact on our business.
9
Our business and growth may suffer if we
are unable to attract and retain members of our senior management team and other key employees.
Our success has been largely dependent on the
skills, experience and efforts of our senior management team and key employees and the loss of the services of any of our senior management
team or other key employees, without a properly executed transition plan, could have an adverse effect on us. The loss of any member of
our senior management team or any of our other key employees could damage critical customer relationships, result in the loss of vital
knowledge, experience and expertise, could lead to an increase in recruitment and training costs and make it more difficult to successfully
operate our business and execute our business strategy. We may not be able to find qualified potential replacements for these individuals
and the integration of potential replacements may be disruptive to our business.
Furthermore, our ability to expand operations
to accommodate our anticipated growth will also depend on our ability to attract and retain qualified management, sales and technical
personnel. However, competition for these types of employees is intense due to the limited number of qualified professionals. Our ability
to meet our business development objectives will depend in part on our ability to recruit, train and retain top quality people with advanced
skills who understand our industry, technology and business. If we are unable to engage and retain the necessary personnel, our business
may be materially and adversely affected.
We could be subject to economic, political,
regulatory and other risks arising from our international operations.
Operating in international markets requires significant
resources and management attention and will subject us to regulatory, economic and political risks that may be different from and incremental
to those in the United States. In addition to the risks that we face in the United States, our international operations in Israel and
Croatia, may involve risks that could adversely affect our business, including:
● unexpected changes in regulatory requirements;
● less favorable foreign intellectual property laws;
● profit repatriation and other restrictions on the transfer of funds;
● new and different sources of competition; and
Our failure to manage any of these risks successfully
could harm our international operations and our overall business, as well as results of our operations.
10
A global pandemic may disrupt our business
or the business of our customers.
In December 2019, a novel strain of corona virus,
which causes the infectious disease known as COVID-19 was reported. The World Health Organization declared COVID-19 a Public Health Emergency
and Global Pandemic. Although many economies around the world have started to rebound from the severe impact of COVID-19, the healthcare
industry in which we operate remains impacted. The emergence and spread of new variants and resurgences, or other epidemics or pandemics,
actions taken by governmental authorities and others in response to the pandemic, the acceptance, and the ability of pharmaceutical manufacturers
and other life sciences companies to develop effective and safe treatment, and global economic conditions could affect the desire and/or
need for our solutions. We are prepared to take steps to modify our business practices and mitigate the impact of the emergence and spread
of new variants and resurgences, or another pandemic or epidemic; however, there can be no assurance that such steps will be successful,
or that our business operations, or the operations of our customers or partners will not be materially and adversely affected by the consequences
of such pandemic or epidemic, which could materially impact our results of operations, cash flows, and financial condition.
Risks Related to Inflation and Other Adverse
Economic Conditions
Inflation and other adverse economic conditions
may adversely affect our business, results of operations and financial condition.
Recently, inflation has increased throughout the
U.S. economy. In an inflationary environment, we may experience increases in the prices of labor and other costs of doing business. Additionally,
cost increases may outpace our expectations, causing us to use our cash and other liquid assets faster than forecasted. If we are unable
to successfully manage the effects of inflation, our business, operating results, cash flows and financial condition may be adversely
affected.
The occurrence or perception of an economic slowdown
or recession, or of a further increase in inflation, may have a negative impact on the global economy and may reduce customer demand for
our products and services. In addition, macroeconomic effects such as increases in interest rates and other measures taken by central
banks and other policy makers could have a negative effect on overall economic activity that could reduce our customers’ demand
for our products and serves. Adverse changes in demand could impact our business, collection of accounts receivable and our expected cash
flow generation, which may adversely impact our financial condition and results of operations.
Risks Related to Our Intellectual Property
and Technology
We are dependent, in part, on our intellectual
property. If we are not able to protect our proprietary rights or if those rights are invalidated or circumvented, our business may be
adversely affected.
Our business is dependent, in part, on our ability
to innovate, and, as a result, we are reliant on our intellectual property. We generally protect our intellectual property through patents,
trademarks, trade secrets, confidentiality and nondisclosure agreements and other measures to the extent our budget permits. There can
be no assurance that patents will be issued from pending applications that we have filed or that our patents will be sufficient to protect
our key technology from misappropriation or falling into the public domain, nor can assurances be made that any of our patents, patent
applications, trademarks or our other intellectual property or proprietary rights will not be challenged, invalidated or circumvented.
In the event a competitor or other party successfully challenges our solutions, processes, patents or licenses or claims that we have
infringed upon their intellectual property, we could incur substantial litigation costs defending against such claims, be required to
pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material
adverse effect on our business, operating results and financial condition. We cannot assure you that steps taken by us to protect our
intellectual property and other contractual agreements for our business will be adequate, that our competitors will not independently
develop or patent substantially equivalent or superior technologies or be able to design around patents that we may receive, or that our
intellectual property will not be misappropriated.
If we are unable to protect our proprietary rights,
we may be at a disadvantage to others who do not incur the substantial time and expense we incur. Preventing unauthorized use or infringement
of our intellectual property rights is inherently difficult. Moreover, it may be difficult or practically impossible to detect theft or
unauthorized use of our intellectual property. Any of the foregoing could have a material adverse effect upon our business, financial
condition and results of operations.
11
Cybersecurity incidents could disrupt business
operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Global cybersecurity threats can range from uncoordinated
individual attempts to gain unauthorized access to our information technology (IT) systems to sophisticated and targeted measures known
as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address and mitigate these threats (including
access controls, insurance, vulnerability assessments, continuous monitoring of our IT networks and systems, maintenance of backup and
protective systems and user training and education), cybersecurity incidents, depending on their nature and scope, could potentially result
in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own
or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include
reputational damage, loss of customers, litigation with customers and other parties, loss of trade secrets and other proprietary business
data and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results
of operations.
We may be unable to support our technology
to further scale our operations successfully.
Our plan is to grow through further integration
of our technology in electronic platforms. Our growth will place significant demands on our management and technology development, as
well as our financial, administrative and other resources. We cannot guarantee that any of the systems, procedures and controls we put
in place will be adequate to support the commercialization of our operations. Our operating results will depend substantially on the ability
of our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and
other resources. If we are unable to respond to and manage changing business conditions, or the scale of our solutions, services and operations,
then the quality of our services, our ability to retain key personnel and our business could be harmed.
Our business will suffer if our network
systems fail or become unavailable.
A reduction in the performance, reliability and
availability of our network infrastructure would harm our ability to distribute our solutions to our users, as well as our reputation
and ability to attract and retain customers. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications
failure, Internet breakdown, earthquake and similar events. Our systems could also be subject to viruses, break-ins, sabotage, acts of
terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. We might not carry adequate business interruption insurance
to compensate us for losses that may occur from a system outage. Any system error or failure that causes interruption in availability
of our solutions or an increase in response time could result in a loss of potential customers, which could have a material adverse effect
on our business, financial condition and results of operations. If we suffer sustained or repeated interruptions, then our solutions and
services could be less attractive to our users and our business would be materially harmed.
Risks Relating to Our Common Stock
If a market for our common stock is not
maintained, shareholders may be unable to sell their shares.
Our common stock is traded under the symbol “OPRX”
on the Nasdaq Capital Market. We do not currently have a consistent active trading market. There can be no assurance that a consistent
active and liquid trading market will develop or, if developed, that it will be sustained.
Historically, our securities have been thinly
traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless
we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations
in the price of the stock.
12
The market price of our common stock may
be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control.
Our stock price is subject to a number of factors,
including:
● Government regulation of our solutions and services;
● The establishment of partnerships with other healthcare companies;
● Intellectual property disputes;
● Additions or departures of key personnel;